BARCELONA, Spain, May 18 /PRNewswire-FirstCall/ — Private Media Group, Inc. (Nasdaq: PRVT), a worldwide leader in premium-quality adult entertainment products, today announced its results for the three months ended March 31, 2009.

Net sales. For the three months ended March 31, 2009, we had net sales of EUR 5.8 million compared to net sales of EUR 5.3 million for the three months ended March 31, 2008, an increase of EUR 0.6 million. The increase was the result of increased Internet sales offset by decreases in sales of DVD & Magazines, broadcasting and wireless. Internet sales increased EUR 1.9 million to EUR 3.0 million, which represents an increase of 162% compared to the same period last year. The increase in Internet sales was the result of the acquisition of GameLink. DVD & Magazine sales decreased EUR 0.8 million, or 38%, to EUR 1.4 million. The reduction in DVD & Magazine sales was primarily attributable to an industry wide decrease in DVD sales (see discussion under Outlook below). Broadcasting sales decreased EUR 0.4 million, or 28%, to EUR 0.9 million, primarily as a result of a decrease in title sales, offset by increases in TV-channel sales and video on demand sales via IPTV. Wireless sales decreased by EUR 0.1 million to EUR 0.5 million in the period.

Going forward, we expect Internet, wireless and Broadcasting sales to increase (see discussion under Outlook below).

Our cost of sales was EUR 3.6 million for the three months ended March 31, 2009 compared to EUR 3.4 million for the three months ended March 31, 2008, an increase of EUR 0.2 million, or 5%. Included in cost of sales is Internet, broadcasting and wireless cost. printing, processing and duplication and amortization of library. Internet, broadcasting and wireless cost was EUR 1.5 million for the three months ended March 31, 2009 compared to EUR 0.5 million for the three months ended March 31, 2008. Internet, broadcasting and wireless cost as a percentage of related sales in the period was 34% compared to 17% in the same period last year. The increase was primarily the result of an increase in Internet cost of EUR 1.3 million as a result of the acquisition of GameLink, offset by lower wireless and broadcasting cost as result of more cost efficient content delivery. Printing, processing and duplication cost was EUR 0.6 million for the three months ended March 31, 2009 compared to EUR 1.3 million for the three months ended March 31, 2008, a decrease of EUR 0.7 million, or 50%. Printing, processing and duplication cost as a percentage of DVD & Magazine sales was 45% for the three months ended March 31, 2009 compared to 56% in the same period last year. Amortization of library was EUR 1.4 million for the three months ended March 31, 2009 compared to EUR 1.6 million for the three months ended March 31, 2008, which represents a decrease of EUR 0.2 million. Amortization of library does not vary with sales since it reflects the amortization of our investments in content which has been available for sale for a period of three to five years.

In the three months ended March 31, 2009, we realized a gross profit of EUR 2.2 million, or 39% of net sales compared to EUR 1.9 million, or 35% of net sales for the three months ended March 31, 2008. The increase in gross profit as a percentage of sales was primarily the result of reduced margins on DVD & Magazine sales.

Our selling, general and administrative expenses were EUR 3.6 million for the three months ended March 31, 2009 compared to EUR 3.3 million for the three months ended March 31, 2008, an increase of EUR 0.3 million, or 11%. The acquisition of GameLink added EUR 1.0 million, which was offset by EUR 0.8 million in reduced selling, general and administrative expenses in all other areas except bad debt provision, which increased by EUR 0.1 million.

We reported a loss of EUR 0.8 million for the three months ended March 31, 2009, compared to EUR 0.8 million for the three months ended March 31, 2008.

Commenting on some important factors relating to the business going forward, Private Media Group, Inc., CFO Johan Gillborg stated: “We have been transitioning our business model from linear to digital content production and distribution over the last 18 months and this has affected our margins. As DVD and magazines sales have rapidly declined, we have made great progress moving to digital business with significant new media distribution deals and the monetization of our expansive library of content. We are now a leading adult content provider on all major digital platforms, and as they continue to build out and get larger, we project aggressive growth in both sales and net income. Specifically, we project the biggest gains to be achieved through: Internet, broadcasting and wireless. During the three-month period ending March 31, 2009, these platforms were responsible for 76% of our sales. Following is a discussion highlighting some of the important factors of our business going forward.

“On January 20, 2009 we expanded our Internet operations through the acquisition of GameLink LLC and its affiliates, companies engaged in digital distribution of adult content over the Internet and eCommerce development. GameLink is a leading US adult entertainment VOD and eCommerce platform through its www.gamelink.com website. The site’s installed user base represents over one million domestic and international customers and it serves over 100,000 users daily. Including more than 70,000 video titles, GameLink has the largest library of digital and physical adult media and novelties in the United States. The Company offers VOD in multiple media formats including streaming and downloads to computers and iPhones. GameLink’s infrastructure is the most robust in the industry and it is highly flexible, customizable and scalable, designed to support multiple retail strategies simultaneously. Additionally, through its related companies, GameLink offers third-party and white-label ecommerce solutions and development.

“The acquisition of GameLink is a significant development that will substantially contribute to our growth, while creating economies of scale. As part of our digital strategy we have concluded that the combination of Private with a major online retailer and accomplished platform developer is the best approach to achieving our goals. The combined content assets of Private and core competencies of GameLink offer a compelling new business model. We will be expanding our joint Internet strategies globally with new formats and applications to be launched in 2009. Additionally, we will be developing improved interactive functionality for new media platforms such as IPTV and mobile, and maximizing our content monetization with the existing vast Private library as well as aggregation of select international studios offering a wide range of content and genres for all platform needs. With this expanded digital strategic focus we will be announcing a variety of compelling new initiatives during 2009. As from the first quarter of 2009, we will be consolidating 100% of GameLink’s financials with Private’s. For the year ended 2008, GameLink and its affiliates reported net sales of USD 16.4 million.

“Furthermore, we are successfully implementing our new media strategy for IPTV growth and to date we have contracted with 36 major platform operators in 18 countries in Europe, as the leading supplier of adult content. Currently we have gained more than 75% coverage of the European IPTV market(i) and across all platforms, quarter by quarter, sales are growing continuously in line with the general growth of the market. Going forward, we expect to increase our market coverage in this rapidly expanding market, which compared to traditional pay-TV generates substantially higher sales per subscriber at a considerably better margin and subsequently this will contribute significantly to operating profit going forward.

“In relation to Private branded TV channels carrying our content in Europe and Latin America our partners Playboy TV Latin America and Playboy TV International continue to improve distribution. In 2008, Playboy TV Latin America increased the distribution significantly in Brazil, Argentina and Central America and we expect to see the positive impact from this going forward.

“With respect to mobile content, Private content is available to 1.2 billion handsets via 104 mobile network operators in 45 countries. In 2008, we have been optimizing our content delivery network of aggregators in order to secure a more aggressive long-term growth. In the fall of 2008 this process was completed and consequently we expect sales to increase significantly going forward. Additionally, we are implementing a new off-portal strategy in Q2 2009 to capitalize on the expected transition and growth with this new consumer access to mobile content.

“The markets of Asia and the Americas are still underexploited by us and therefore represent a significant growth potential as they are projected to be more accessible for adult content in the next 12 months. In addition, Mobile TV, increased penetration of 3G handsets and the implementation of age verification systems offer additional significant growth potential with both current and future operators in 2009 and beyond(iii).

“As we further transition into global digital content delivery, DVD pricing and volume is being affected considerably and as a result the industry in general is experiencing a severe downturn in DVD sales. In view of the aforementioned, we continue to re-strategize our distribution of DVDs and Magazines to reduce any further negative impact of this downward DVD trend,” Mr. Gillborg concluded.